126 entries from December 2008

December 31, 2008

I absolutely promise you, in every serious negotiation, the man or woman who doesn't care is going to win.

I couldn't have said it better myself.

What he's really talking about is "walk away power" -- the ability of the potential buyer to simply walk away from the deal if it's not good enough. If you literally don't care about a deal/sale/whatever (or at least don't care so much that you HAVE to do the deal), you have a great advantage in negotiating terms, price, and so on.

So, how does this work in practical application? Here are a few examples:

If you're willing to walk away from buying a car, you can get a great deal (worked for me TWICE within a six-month period in 2004 when I bought two cars).

If you're willing to take/find a new job, it makes it way easier to get a raise (though you have to be careful with this one -- you don't want to appear to be holding them for ransom).

For us, this is also playing out in the housing market as we look for a new home. Since we're emotionally detached during the buying experience, we have a great advantage when it comes to dictating price (though it hasn't gotten us that far yet.) :-)

How about you? Have you ever saved a ton by simply being willing to walk away from a deal?

57% of students are considering less prestigious colleges for affordability reasons.

It's an interesting piece of information, though it doesn't tell us if this is an upwards or downwards trend, though I'm assuming it's upwards -- that more and more students are looking harder at the costs of college before they decide where they should go.

Personally, I'm not an advocate of going to a "prestigious" school unless that school can deliver. If it gives graduates better jobs/careers, then it could be worth the money. But if it's more expensive than other options and delivers the same (or even not as good) sort of career opportunities, I'd pass on the "prestige" in favor of the "money." ;-)

Kids and Financial Rewards -- We're in general agreement on these issues. Every once in awhile something unique pops up, but we usually settle it without much trouble.

Fiscal Infidelity -- No need to hide purchases since we can buy whatever we want with our own personal accounts.

Our biggest "fight" (if you call it that) is over how much we should save versus how much we should give. A good part of our income is given away, and my wife always wants to give away more. I tell her that we need to be sure we save (retirement, college, etc.), but she doesn't think we need to (she hasn't run the numbers and seems to think that we could retire easily on $500k.) Anyway, it's too her credit that she's so giving -- though we do need to keep it in check! ;-)

Here's a reminder from Consumer Reports not to let shipping fees sour a good deal. He didn't go exactly where I thought he was when the piece started, but it made me think of a situation I ran into this past Christmas and how I almost let "high shipping fees" keep me from a good deal.

I was looking for a hard-to-find video game for my daughter. I saw it at a local store for $19.99 (a good price from what I found online up till then), but she was with me so I couldn't get it then. A few days later I went back and they didn't have it. It was a "classic" game and they rotate those in and out on a random basis. I'd missed my chance.

So I went to Amazon to see what they had to offer. To my surprise, they now had a copy of it online -- and for only $9.99!! Sweet!! However, there was a catch. The product wasn't from Amazon directly but from one of the many "stores" that sells through Amazon. As such, I couldn't get my free shipping for ordering over $25 -- I had to pay the store's shipping rates. And they were charging $7 to ship it to me (yes, this rate was the lowest-priced option.)

I was outraged! $7 of a $10 video game? No way! What crooks! They were trying to rip me off! There was no way I was buying from them, so I logged off and decided to look for other avenues to get the game.

Now at this point I'm sure you've already seen what it took me a couple days to figure out. Once I calmed down, I realized that the $9.99 plus $7 shipping was a better deal than what I was prepared to pay at the local store (especially when you consider I'd have to pay tax locally.) But I had gotten so worked up over them trying to rip me off with the high shipping fees that I lost perspective. I went back to Amazon, found the video, ordered it, and received it a few days later. My daughter loved it when we opened it on Christmas.

So here's a reminder of a basic shopping tip: consider total price of a purchase and don't let one out-of-whack component (like shipping) make you pass up a good deal.

December 30, 2008

One of my favorite personal finance writers is Eric Tyson. I like the way he focuses on the basics, explains complicated issues simply, and has a philosophy of money that's similar to mine. Well, he now has a website and he was kind enough to answer a few questions from me about his writing and the new site. Once you read this, if you do check out his site, I'd love to hear your thoughts on it. For now, here's the interview:

Tell us about yourself.

I have an extensive background in the financial services field. First, as a management consultant to major financial service firms including banks, insurers and money managers. I am a trained economist earning my degree with honors at Yale University and I earned my M.B.A. at Stanford. I worked for more than a decade as a personal financial counselor as well during which time I began writing about working with clients. I now write two syndicated columns and have authored or co-authored numerous best-selling books including Personal Finance for Dummies and Investing for Dummies.

Tell us about the new site.

EricTyson.com digests and summarizes important current news having personal finance implications. The point of the site is to save people the time and money scouring for useful content.

How is the site different than others? What makes it unique?

Original content and summaries of content that you'd have to pay for elsewhere.

The site is free now, correct? Will it always be? If not, why not?

I expect to charge a modest subscription fee as I provide high quality content and have extensive expertise in my field. I don't care for the advertising model because of real and perceived conflicts of interest.

What articles on the site do you think are especially interesting/compelling?

Use a credit card. Whether you’re making a down-payment, ordering parts or accessories, or getting repairs or service, use a credit card. If the dealer fails before your vehicle or parts are ready or before you have a chance to complain about shoddy or incomplete work, you can challenge the payment with your card issuer. If you pay with cash, check, or debit card, you’ll likely be out of luck. Just be sure to use a credit card with no balance so that you don’t pay finance charges.

Here's a piece on how to get really, really rich. The short version? Start your own business. Of course there's more to it than that, but starting your own business is the main advice this article gives.

Overall, I think I have to agree with this piece. If you want to get really, really rich (tens of millions of dollars worth), there are only a few ways to do it and most of them are unlikely to happen to most of us (inheritance, lottery winner, etc.) But having a business is something all of us at least have a chance of doing, so unless I'm missing something (you tell me), then it's the most likely way for most people to become really, really rich. That's not to imply it's easy, just that it's more likely than inheriting $50 million or winning the Super Lotto.

Then again, does anyone need to be really, really rich? If you simply apply the principles I discuss here at Free Money Finance (summarized in my post on three steps to becoming rich), you can become wealthy enough to live a pretty comfortable life -- and without the "sacrifice your family, friends, and health" that so often comes with giving your all to a business. No, I'm not there yet myself, but I'm well on the way, and I hope to take as many of you with me as I can. :-)

December 29, 2008

Myth No. 1: You should replace a certain percentage of your income in retirement.

"This replacement rate was developed by the industry in order to promote sales of their mutual fund products and is inappropriate for most households," Kotlikoff says.

Kotlikoff advocates what he calls "consumption smoothing." That means spending more in your working years, when there are more mouths to feed, and less in retirement, when it's just you and your spouse or perhaps just you alone.

To me, the "plan on spending 80% of your current income (or whatever percent) during retirement" is simply a very rough guide, call it a rule-of-thumb. It's an estimate for those people who don't want to (or can't) calculate what they will actually spend then.

Instead, I recommend that people estimate their actual retirement expenses by making up a mock budget. Of course there will be several things you'll have to estimate and you'll need to update it every few years, but still, it will give you a better picture of what you'll actually spend then the "80% rule."

One other tip I follow is to assume I'll get nothing from Social Security and I save accordingly. This way, I'll have plenty of cushion in case I estimate too low on my expenses (because, in actuality, I'll probably get something from SS.)

So, I guess I agree with them on myth #1.

Myth No. 2: You should hold a combination of stocks and bonds in your 401(k).

If you have both tax-deferred retirement accounts and regular investment accounts, you should hold stocks in the regular accounts and bonds in retirement accounts to reap the best tax rewards, Kotlikoff and Burns argue. Equities pay their returns as capital gains and dividends, which are taxed at a 15% rate or lower, depending on income. Bonds pay out interest that is taxed at the income tax rate, as high as 35%. But everything you accrue in a tax-deferred retirement account -- be it capital gains, dividends or interest -- is taxed as income at the higher rate when you take the money out.

I have a small percentage of my asset allocation in bonds and all of them are in tax-deferred accounts. This isn't to say that my only investments in tax-deferred accounts are bonds (I have stocks in them as well), just that all my bonds are in tax-deferred accounts (none in taxable/regular accounts).

Now I'm with them two for two. Here's the last myth:

Myth No. 3: A broker can help you get higher returns.

Although many money managers vow to beat the market, the odds are against it.

"About 80% of mutual fund managers underperform the market," Kotlikoff says. "In addition to buying securities that are risky, you are buying a money manager who is risky, and you are also paying a high price."

"You can do all this stuff on your own without paying high fees," Kotlikoff says. "Just invest in index funds for stocks and TIPS for bonds."

As most of you know, I'm a user of cash-back rewards credit cards. Currently I'm using the Blue Cash from American Express and Chase Freedom Cash Visa cards in an effort to earn 2.6% cash back, though I am interested in the new Schwab card. I still need to do the analysis to see what is the best option for us, but I know for sure that 1) we'll use a cash back card (or cards) and 2) at the most, we'll use two cards. Yeah, we could earn a bit more, but once the number of cards gets over two, it's simply too much of a card management hassle to get the extra money.

Assess your spending. Most cards offer reward bonuses for spending in certain categories, either as a regular feature or a temporary promotion. Choose a card that lines up bonuses in categories where you spend the most.

Exactly! This is one of the keys to selecting the best credit card -- to get a card that gives you the best rewards (highest rate of cash back) where you spend the most money. This is a key issue for us as many cards give top levels of rewards for food, gas, and drugstores. But we only spend about 30% (my guess) of our total charges in these categories, so we need to look for something that gives us big rewards on "normal" purchases (hence my interest in the Schwab card.)

Next, they make this comment:

Skip the stuff. Redeeming points or miles for merchandise is often the worst way to spend rewards. With Bank of America's program, for example, it takes 25,400 points for a blue 8GB iPod Nano. For 25,000 points, you could get $250 cash, enough to buy the player at Apple.com for $149, with $101 and 400 points left over.

Exactly again -- just what I said. I think most of the points programs are simply an attempt to make you think you're getting a good deal when you could most likely earn cash instead and buy the item for much less (whether it's a flight, a hotel room stay, a blender, or whatever.) Besides, cash is much more flexible -- you can use it to buy anything and aren't locked into a predetermined set of choices. And, of course, there are no blackout dates for cash. ;-)

We were in Walmart the other day when I heard my wife a couple aisles over talking to someone. Since the kids were with me, I knew it wasn't them, so I went over to see who she was talking to. Turns out there was a deaf gentleman there who had handed her a card saying 1) he was deaf and 2) would she "buy" a small book from him on sign language to help him out financially?

I've seen this "fundraising technique" a few times in the past (I can't remember if they've come to my house or if it's always been in a public place), but the situation is always the same: deaf person, card explaining what they are doing, "selling" a small booklet, so they can get financial help/support themselves.

So here were the thoughts I had immediately upon being confronted with this latest situation:

What is this guy doing in Walmart asking for money? Yeah, Walmart allows people outside to do fundraisers, but this was in the housewares section and he was obviously trying to be inconspicuous.

Is he even deaf? Is this legit or some sort of scam?

Is he really needy? Or is he one of those "beggars" that earns $70k per year or so?

Anyway, I told him "no" and he took his book and was off to the next victim in no time. We don't give to spur-of-the-moment emotional appeals where the need and motives of the person/charity are questionable, and he clearly fit into this classification, so it was easy to say no.

Then again, it was difficult afterwards as I thought about the situation. Was he really needy? Maybe he was. But maybe he was just a fake, playing on the emotions people have about the deaf (helping someone with a need.) I'm convinced that I did the right thing, but the situation still has me second-guessing myself a bit. After all, let's say I gave him a dollar. Is that really any big deal -- even if he was a fraud?

Anyway, I'm very interested in your thoughts. Has anyone ever had this happen to them? What did you do? Or what would you do if presented with this situation?

I am giving away a copy of You Need a Budget! All you need to do to enter is to leave any comment on this post. Sometime in the next day or two, I'll select a winner at random and announce with a new post that a winner has been selected. (Update: For those of you who don't know -- and some don't based on the comments below -- this is a piece of software. It's NOT a book!)

It will be the winner's responsibility to email me their contact information. I'll then send the winner's information to the You Need a Budget people and they'll work out getting the prize delivered.

A few rules for these giveaways:

1. You can not win more than one prize.

2. I will be the complete and final judge.

3. Legal disclaimer: I can not guarantee safe delivery of the items. I've worked with the YNAB people before and they're great, so I'm sure it will all work out smoothly. That said, I won't be held accountable if there's a mess up.

4. If you win something and do not contact me within a week of winning, I reserve the right to give your prize away to another winner. I won't track down the winners -- it's your responsibility to come back and see if you won.

This article tells the story of two friends who won a lottery in 2005. They each won $3.7 million (not a fortune, but nothing to sneeze at either) and went their separate ways (for the most part.) One of the guys, Aristeo Robelin, has managed his money wisely. The details:

With most of his winnings reserved for his children, Robelin says he lives on $80,000 per year.

Soon after he picked up his check from the state lottery office in Lansing, Robelin quit his job installing windows. He avoided the spending sprees and extravagant gifts for family and friends that befall many lottery winners and estimates he has more than $2 million remaining.

"I know the value of a dollar," Robelin says. "It's not like I worked hard for it, but it's mine."

In other words, he's living within his means and making his winnings last a good long time. Sure, he's not living the high-life, but $80k per year is a decent amount to live on -- and he's not even touching the $2 million he has in the bank ($2 million at 5% a year is $100k -- and he's spending below that amount.) Good for him!

Since Bryce won the Mega Millions lottery three years ago, he has clashed with family, spent close to $3 million and isn't far from the poorhouse - a place he assumed he'd never visit again.

In the first 30 days after hitting the jackpot - which brought him $3.7 million - Bryce dished out at least $1 million.

He has stopped the $100 tips for Applebee's waitresses, drunken, late-night check writing and footing the bill for his three adult children.

Facing life as a thousand-aire at 47, Keith Bryce is back installing windows for his brothers' company, the same part-time job he worked before winning.

''When you don't have any money to begin with,'' his sister Kay Popp says, ''I wouldn't wish (winning the lottery) on anybody.''

Disagreements over money have divided the Bryce family.

The piece goes on about bad decision after bad decision this guy made. Now he's in bad shape physically, his finances are wrecked, and his relationships with various family members are in ruin.

It was interesting to read the contrasts about these two guys. One managed his money the way most lottery winners manage their money -- like $3.7 million would last forever even at a high rate of spending. Now, he's paying for those decisions. The other, even though he had no extra financial education or experience, managed his money very wisely, and if he keeps it up, he'll be set for life. What a contrast!

Looked at from a bigger perspective, these two guys represent two groups of people (millions in total) across the country. One group spends more than they earn and end up in tough financial shape. The other group manages what they have wisely and does well in almost any financial climate. Hopefully, you're a member of the latter group.

These simple principles are why I say the Bible will make you rich. But, of course, you have to follow them. And not following basic money principles can put people in a tough financial situation -- a scene we're seeing played out over and over and over again these days.

Spend it quickly. With more retailers expected to go out of business in 2009, gift cards could quickly be rendered worthless. So if you receive one, make sure to spend it as soon as possible. (Shopping in late December and early January will also get you post-Christmas discounts.)

We received several gift cards this year and this is EXACTLY what we plan to do with them -- spend them quickly in conjunction with after Christmas sales. In fact, that's what we'll probably be doing later on today.

BTW, we also gave gift cards, but only gave out Meijer cards, so the recipients can be pretty sure that their cards will be useable for a long, long time.

December 26, 2008

Yahoo has some thoughts on how to manage an exit interview including asking for your comments to be anonymous (yeah, like that will happen), anticipating the important questions, and offering constructive solutions. It's an ok piece if you feel you MUST comment. But here are my thoughts on an exit interview:

1. An exit interview is for the benefit of the company only. In no way will you gain from it (in most cases). Remember, you've already moved on (theoretically) and have another job. So why do you care anyway?

2. Given #1, I would avoid an exit interview if at all possible. If asked to give one, I'd say "I don't really have anything of benefit to contribute in an exit interview" or something like that.

3. If forced to do an exit interview, offer a few minor suggestions for improvement (ones that "everyone" knows need to be done anyway). This way, you've offered them something that an HR person can put in a file and feel like they've accomplished their job for the day.

4. Whatever you do, do NOT badmouth you boss, co-workers, executives, the company, etc. You will get zero benefit from this (other than maybe feeling better for 15 minutes for venting), but it could come back to bite you. It's a small world out there and a bad comment directed to the wrong person could derail some of your future plans. Don't think it will happen to you? I'm telling you, I've seen it happen time and again. Be nice and don't burn your bridges.

What about your "friends" still at the company? What about giving an honest assessment of the situation and "telling it the way it is" to help them out? I'm ok with this as long as those same friends will help you pay your bills when your career is negatively impacted, when you can't get a job/promotion you want, and so on. In other words, forget about "helping" out your friends. It's harsh to say, but they'll need to fight their own battles. For the sake of your career and your earning ability, simply move on, thanking everyone for the opportunities they gave you while you were employed.

All this said, I think this discussion is a moot point for many of us. The last time I had an exit interview was about 15 years ago. Do many companies even use them these days?

Anyway, I think most people will use a combination of working longer and downsizing -- not because they want to, but because they have to. And these two are the only real choices most people will have since they are often unwilling or unable to curtail their spending and start to save more.

Personally, I'm saving like a fiend for retirement -- fully contributing to my 401k, saving in a SEP-IRA from my side business, and putting money in a taxable account to boot. Of course, the stock market isn't helping me any in this pursuit (a friend from work and I joke every day the market goes down, "That's another year we'll get to work together!"), but I still have a 20-year time horizon, so I should be a big investment bump between now and then. In addition, I'm saving as if Social Security will pay me nothing, so if I do receive anything from the government, it will be a windfall.

Real estate -- The bogeyman of this downturn should still—someday—be a viable part of your portfolio. The housing bust makes it easy to shun the sector entirely, but real estate investment trusts, or REITs, historically offer unique risk-management benefits.

Inflation-protected securities -- A slowing economy and the threat of deflation haunt the market today, but the return-killing specter of inflation will eventually re-emerge, if history is any guide. A small allocation of treasury inflation-protected securities, or TIPS, helps lower the risk of unexpected jumps in prices.

Commodities -- It may not be happening right now, but commodities generally move in the opposite direction of both stocks and bonds, especially over long periods of time. Plus, commodities tend to perform best when your portfolio needs them most. A dollop of commodities offsets the risk of inflation, allowing you to buy longer-dated bonds with higher yields.

Fixed annuities -- Annuities aren't for everyone, but for retirees considering how to make shrinking portfolios last, they're worth keeping in mind. Fixed annuities are contracts issued by insurance companies that provide regular payments until the end of the holder's life. They offer some of the best security against ups and downs in investment returns at a time when you'll be spending your hard-won gains in retirement.

Stable-value funds -- Offered through retirement accounts, including IRAs, stable-value funds are a conservative answer for investors looking for just a bit more return than the usual money market fund provides. Stable-value funds are essentially agreements between an issuer and an insurer who agree to keep the fund's value stable. Volatility and risk are generally low for stable value.

Other than real estate (through owning my home), I don't have any of these. Inflation-protected securities and commodities are options I should likely investigate while fixed annuities and stable-value funds don't hold much interest for me. How about you -- any of these either part of your current portfolio or something you want to check out?

Doctors, labs and other medical providers are often willing to negotiate, with both uninsured patients and those whose insurance only covers a portion of their health expenses.

Pay cash upfront. Doctors may offer you the same low rate that they charge insurance companies, if not an even cheaper fee if you agree to pay them at the time of the appointment.

Compare costs. Check your provider's rates against those of other doctors in the area.

2. Retail stores

Point out flaws. Floor models, sale items and products with visible damage (like a scuff or missing button) are ripe for discounts.

Be flexible. Substantial flat-out discounts aren't always possible, so ask about extras such as free shipping or an extended warranty.

3. Cars

Incite dealer competition. If you're buying a new car, collect quotes from local dealers.

Assess market value. Buyers should use sites like Kelley and Edmunds to estimate the used car's value, then talk up the factors they don't like (i.e., not the ideal color, too many miles) to work down the price.

Here are a couple pieces I ran into today that I thought were worth sharing:

Home prices plunge as sales slow sharply -- Sales of new and existing homes plummeted in November, as buyers stayed out of the market amid the growing financial crisis and deepening recession, according to figures released Tuesday.

Sales of existing homes fell 8.6 percent, far more than expected, to an annual rate of 4.49 million in November, from a downwardly revised pace of 4.91 million in October. The median sales price fell 13.2 percent — the largest amount on record — to $181,300, from $208,000 a year ago.

That was the lowest price since February 2004 and the biggest year-over-year drop on records going back to 1968. The drop in home prices was probably the largest since the Great Depression, NAR chief economist Lawrence Yun told reporters.

Looks like we haven't hit the bottom yet. Maybe I was lucky not to have purchased a home this past fall.

I drive the car until problems/issues arise (which is usually 7-10 years), and then start the process all over again

Now I know that you can save a good amount by buying used cars, but I'm not mechanically minded and don't want the time, hassle, potential "lemon" problem associated with buying a used car. But I know many of you do buy used and many more would like to. For all of you, Bankrate offers some thoughts on how to avoid buying a used car that's a lemon as follows:

Get a CarFax report.

Beware of cars with out-of-state titles.

If you're looking at a 4-year-old Ford, for example, copy the vehicle identification number and take it to a Ford dealer and ask if they will run the service record through their computer.

Beware of cars with no records of oil changes and other routine service.

Look for evidence of major body or paint work.

Pull up some of the carpeting and look for sediment or signs of mildew.

Here's an oldie but goodie: Check for excessive wear in the rubber brake pedal pad.

They end with another bit of useful advice:

Lastly, if a deal on a used car seems too good to be true, it probably is. Even in a bad economy, no one is going to give away a car that's worth $6,000 for $3,000.

Ok, all you used car buying experts out there -- anything else to add?

We've already had 45 inches of snow this season (most of it this month) and we're supposed to get 5-10 more inches today/tonight. Our annual average is 72 inches for the season (November through April), so we're waaaaay ahead of schedule.

When applying, avoid expressing bitterness or self-pity. Many layoff victims send cover letters that blame the economy for their job loss, says Ms. Shapiro. There's no need to even point out the fact that you've been laid off. "If your last work day was in October, your résumé will say that," she explains. Plus, since so many workers have been handed pink slips in the past year, this information is unlikely to kill your candidacy upfront. While it can be helpful to explain why you were let go over others whose jobs were not eliminated, save those details for the interview and use the cover letter to describe your strengths.

And then, be ready to address the issue in the interview:

Prepare an explanation about what led to your layoff. For example, you might tell the interviewer that your skill set wasn't critical to your last employer's survival, but that you believe it is for the organization you're now targeting -- and then explain why, suggests Mr. Joerres.

If you've been unemployed for a long period of time and a recruiter asks why, consider pointing out that you're being selective about your next move, says Mr. Joerres. Then describe how the position is a strong fit. Or you might explain that you opted to delay your search to spend time with family or take a class, suggests Ms. Shapiro. "You have to make those last months sound like a conscious choice," she says.

I've never been in this situation, so I'll have to tell what I would do (versus what I have done) if I was ever laid off. Here are my thoughts:

1. I'd follow their advice regarding initial contact. There's no need to bring up the lay-off before you even have an interview. After all, you're trying to emphasize the POSITIVE, and being laid off isn't really a positive.

2. Then I'd write out reason why I was laid off and practice it for the interview. I'd get it to the point where the answer was delivered in a smooth manner and reflected as positively on me as possible (without disparaging my previous boss or company -- that gets you nowhere.)

And, as they say, being laid off is not the mark of job-hunting death that it used to be -- and it's likely it will become even more accepted as the economy worsens. Employers know that in really bad times even good people are let go and are much more forgiving than they have been in the past. So relax, prepare, and go get 'em!

December 22, 2008

As some of you may have noticed, Visa has recently become a sponsor of Free Money Finance. Specifically, Visa debit cards are the sub-segment of Visa that is sponsoring this blog. I've never really used debit cards (preferring to use cash back credit cards), so I was excited to ask a Visa rep a few questions about debit cards. Here's the mini-interview:

What are benefits of debit cards versus cash or check?

Consumers are increasingly using their debit cards for everyday purchases instead of cash and checks, because they’re convenient, easy to use, can be an effective budgeting tool, and provide benefits that cash and checks don’t offer:

Money Management and Control. Debit transactions are deducted directly from a checking account and recorded in one place on a monthly statement. This allows cardholders to easily track where every penny is going and better spend within their means.

Rewards. More debit cards are also offering rewards so purchases earn points toward travel, merchandise or even cash.

My response: Ok, I agree that debit cards are probably a better option than cash or check, but are they better than credit cards? Not sure yet (see a bit below.)

Where do you get a debit card (does it have to be from your bank)?

Yes, debit cards are generally issued by a financial institution at which you have funds on deposit.

My response: I thought this was the case, but I wasn't sure. Told you I never used debit cards. ;-)

Are there rewards debit cards? If so, what are some of the more popular options?

About 85 percent of U.S. households participate in at least one rewards program. Increasingly, consumers are looking for rewards and value for the transactions they make every day, like paying bills, buying groceries, or filling up their gas tank. As consumers turn to debit cards for these types of purchases – instead of cash and checks – more financial institutions are introducing debit rewards programs.

Often, issuers will pair up with a partner like an airline or hotel to give you the ability to earn points on a debit card toward rewards you care about. Some financial institutions also offer the ability to earn points for qualified purchases that can be redeemed through an online catalog, for items like gift cards, airline vouchers and hotel accommodations.

Many financial institutions also reward their debit cardholders for other relationships they have with the institution – like a car loan, savings account, mortgage, etc. – giving those customers the ability to earn additional points or other benefits.

It’s important to understand how you can earn points toward rewards – what purchases qualify, whether you earn points when you enter a PIN or sign for your purchases, etc. Make sure you ask these questions of your financial institution, as policies may vary.

My response: From this answer, it seems to me that rewards programs with debit cards are just emerging and aren't up to the level of those for credit cards. Am I right? Does anyone know for sure?

Overall, I think that debit cards are best for people who 1) are working their way out of debt and need the convenience of a card without the "credit" aspect and 2) those who don't want credit/debt "on principle" and prefer to pay with "cash" (through a card.)

Yesterday, I got an obnoxious raise: over 15%. I don't make much, but for the company I work at, this is a tremendous jump. I have an awesome set-up here. My company pays for my housing and utilities. I work for great people. There is nowhere for me to progress to as far as this position is concerned, but for a fresh-out-of-college job, after over two years here, I have it made.

About a month ago, I submitted my materials for a teaching or research assistantship and a master's degree. The degree would be in Northern Studies (I have an undergraduate degree in an unrelated field). I have no qualms with leaving my current job, especially if I receive the assistantship (which is free tuition, plus $300/week stipend for the duration).

My question is, is this a good return on my investment? It is not really like I am driving a half hour to the local SUNY school: I'd be trucking it 4,000+ miles from New York to Fairbanks, AK. That kind of lifestyle change is something I am 100% okay with, but is this a good time to be doing this? To be taking such a plunge?

My feeling is, because of global warming, other assorted world events (Arctic sovereignty, natural resources, conservation and globalization), this is a field where the population of experts will not be able to keep up with interest. I mean, I am not looking into any crazy career fields: research, professorships, University work, consulting, whatever -- and I know those salaries are low -- but some people pursue stupid degrees in college that don't pay off, and I want a job that I love, in a place I love, and I love the north.

It's been a dream of mine forever to live up there -- but while I'd love to wax poetic about it, life is hard right now, in this economy, and I was wondering whether you thought it is a good investment to pursue a graduate degree (with the only cost associated being living expenses). I have a nice set-up, but I've been waiting for this opportunity for years, and now the economy is tanking. What's your take on it?

I hardly ever respond directly back to readers because I don't have enough facts, aren't qualified to give advice on the subject, don't have time to give the type of advice they need, etc., but there was something about this one that made me want to respond. Here's what I told her:

From an economic standpoint, it's probably a bad move. It sounds like you'll earn less in the new field than you could earn in your current one, plus you'll forego a few years of salary to get your degree. Plus, you may have some more debt before your schooling is done. Now if you could make more in the new career than you do now, it might be an ok (or even good) financial move, but it doesn't really sound that way from what you've said.

From a "what you want in life" standpoint, it may be a good move. It seems like this is something you'd enjoy (though you never really know until you've been there). I'd suggest you think about it and decide if this is REALLY what you want to do with your life. If it is and you can leave school with little debt, then it's probably a fine move. You'll end up making less money, but you'll be doing something you love. And, after all, there's more to life than making more money (don't tell anyone I said that!) ;-)

Now, having read about the situation as well as my response, what advice would you give her?

Here's a piece from Business Week that says in 15 top U.S. cities, the more you make, the more time you probably spend commuting to work. In other words, the high earners generally don't live in an urban area, they live in the suburbs and need to take a car, train or some other form of transportation to get into work each day. Here's a summary of the situation:

The study also suggests that there is a link between salaries and the time people spend in a car, bus, or train each morning. The poorest people in these urban metro areas have the shortest commutes. In the Boston metro area, for example, people earning less than $20,000 a year commute typically commute 17.3 minutes each way compared with people earning $50,000 to $60,000, who commute 30.8 minutes. Commute times in the city of Boston don't rise much for people earning more than $60,000. Similarly, in New York City commute times climb steadily as annual salaries rise before peaking for employees earning $110,000 a year. The commute time peak in Los Angeles is $60,000; it's $70,000 in Detroit; and it's $30,000 in the vast Dallas-Fort Worth-Arlington metro area, where the typical commute time for wealthy workers is just 26.4 minutes.

This obviously brings up an interesting time-for-money sort of discussion (not to mention the "quality of life by living outside the city" discussion, but we'll table that one for now. For illustration purposes, here are a couple personal stories -- one from a friend and one from me:

A friend of mine used to live in New Jersey and had a job in New York City. He would commute two hours each way into work and then back home for five days a week. Yep, you read that right -- four hours a day commuting (or 20 hours a week.) He got up at 4 am so he could leave home at 5 am (to "minimize" traffic), getting to work at 7 am. He then left at 6:30 pm (again trying to limit the traffic he had to fight) and got home each night at 8:30 pm. In other words, he was gone each day from 5 am through 8:30 pm. His family life was almost non-existent. He slept much of the weekends because he was exhausted. His health was a mess. Sure, his family had a nice home and he made $150,000 a year, but he didn't really have a life. He moved to a smaller city a few years ago and had a 15-minute commute, a bigger house in the suburbs, still made close to the same amount, and his quality of life went way up (BTW, his finances probably improved dramatically because his living costs likely dropped big-time.)

You all have seen the cities I've lived in, so you know that I've never had a huge commute. My worst was actually in Pittsburgh where I had a 30-minute one-way commute -- much worse when the weather was bad. Even in DC I took the metro and made it to work in under 20 minutes (of course I was a student then, and probably would not have lived where I did if I'd had a family.) My commute now is under 15 minutes in good weather but can be as much as 30 minutes if we get hammered with snow and ice the night before. In other words, it's a GREAT commute for the most part -- not much time at all.

We've talked about the fact that some people want to be paid more if they have a long commute, and I can see where they're coming from. If I had to switch to a longer commute (let's say 30 minutes each way), there would certainly need to be a compelling reason (like much more money, better job satisfaction, etc.) before I would move. My time is just too valuable to give up for a few thousand dollars more a year.

Who handles the finances in our family starts with the bigger list of who does what when all the household chores are listed. For instance, who does the cooking (my wife), the cleaning (the kids, mostly), any outside work such as lawns, garden, snow removal, garbage (me), and so on? In addition, we have to consider who is able to do the assigned task (if any special skills/abilities are needed.)

That said, here's how we divide up our financial chores:

I develop an annual budget, then my wife and I meet to discuss/approve it. That serves as our framework for what we will and won't do financially during the next year. Built into the budget are long-term issues like saving for retirement, college, etc. as well as normal/regular spending.

Once we have an approved budget, it falls mostly to me to implement it -- to make sure the 401k is funded, to handle the investments, to pay the bills, and, of course, to enter it all into Quicken.

My wife does much of the shopping -- especially for things like food, clothing, and major purchases. She has a knack for saving money and getting a good value when she buys, so she has free reign to make most of our purchases. I know that if she buys something we likely got both a good price and a product that will perform well for a long time.

Each summer, I prepare a "state of our finances" report (really a series of reports from Quicken) that my wife and I discuss to review how we're doing. We usually do this when our kids are with my parents, so we have the time we need to really discuss what's going on.

Those are the high points of how we manage our finances. How do you split the responsibilities?

December 21, 2008

Christians celebrate the birth of Jesus on Christmas Day. But for too many of us, it's the season that unravels the careful financial planning of the previous 11 months. So this year, instead of trading your financial goals for a mountain of gifts and debt, take a moment to contemplate how a spiritual perspective can help you put your wealth in perspective.

In Christianity, my religious tradition, we are only stewards of our wealth. We are entrusted to use it wisely to meet the responsibilities we've been given. Thus our money belongs to God, and we must first ask ourselves, "What does God want us to do with his money?"

You may find a spiritual perspective on wealth either strange or presumptuous. But for all of us, money is an unconscious placeholder for what we value. The way each family uses money expresses their beliefs. Even when someone uses money hedonistically, it reveals their worldview. More commonly, our use of money negotiates a plethora of competing values such as education and recreation, security and travel, or children's needs and parents' needs.

Every spiritual tradition promotes certain actions and ideals as beautiful, virtuous and true and discourages others as ugly, sinful and false. Having a spiritual view of wealth management, whether based on the Judeo-Christian, Buddhist, Baha'i, or any other faith, helps us purposefully apply our values and use money to meet our goals.

The wisdom we gain from our spiritual traditions challenges us to consider our wealth from a new perspective. In the Christian tradition, the words directly attributed to Jesus, often marked in red in the Bible, have the highest authority. But whatever your religious faith, consider the words of Jesus as a prophet and spiritual leader. In the gospel of Matthew (23:23), Jesus says, "You give a tenth of your spices--mint, dill and cumin. But you have neglected the more important matters of the law--justice, mercy and faithfulness."

Giving a tenth of your income each year, or tithing, is a noble endeavor. Many people use this percentage as a benchmark of their generosity, but Jesus offers us a greater challenge and an important warning. He cites three values that are particularly germane when dealing with our perspectives toward wealth management: justice, mercy and faithfulness.

Justice, the first virtue, is acting fairly. The notion of justice seems to be instilled universally in the human mind and heart. We all recognize injustice, especially against ourselves! But the truth of justice is that all people, regardless of their wealth, have equal value in the eyes of God. Although most believe this to be true in the abstract, wealth can make people act otherwise.

We tend to treat those with power and wealth with more respect and deference than those without. And if we have acquired wealth, we may think ourselves better than others for having done so. But being more productive does not make us more valuable. True justice values every person. And its opposite is pride, believing ourselves better than others because we have wealth, status and power.

In the Christmas story, the wise men come bearing gifts for the baby Jesus. They bring him gold because he is a king. Some have cynically mocked the golden rule, misquoting, "He who has the gold makes the rules." The gift from the magi reminds us that Jesus has the gold, and with him as king, justice rules. Wealth need not make us prideful, and we can treat others with equity and humility.

Mercy, the second virtue that Jesus mentions, translates as kindness toward those in need. Mercy is also a universal virtue. Few would argue against being tenderhearted and compassionate. Although the goodness of mercy is universal, unfortunately the practice is not. Statistics show that the more money people possess, the smaller percentage they give to charity.

If mercy is the virtue, greed is the vice. Making progress toward our financial goals need not blind us to those struggling behind us. Part of our careful planning and budgeting should include cheerfully helping those charities and individuals in need. Jesus emphasizes that becoming generous and merciful is even more important than giving a fixed percentage of our income.

Frankincense, the second gift of the wise men, was used to offer prayers to God. It reminds us to have faith that a power greater than ourselves cares for us. Every person among us needs mercy.

The third virtue, faithfulness, involves a covenant relationship with God to trust ultimately in the spiritual, not the material. If we are not vigilant, the many things we buy with money can become the center of our lives. We can find ourselves literally worshipping material goods.

In his book "Mere Christianity," C.S. Lewis warns, "One of the dangers of having a lot of money is that you may be quite satisfied with the kinds of happiness money can give and so fail to realize your need for God. If everything seems to come simply by signing checks, you may forget that you are at every moment totally dependent on God."

The Old Testament law in Deuteronomy 8:11-18 makes this temptation even clearer: "Be careful that you do not forget the Lord your God. Otherwise, when you eat and are satisfied, when you build fine houses and settle down, and when your herds and flocks grow large and your silver and gold increase and all you have is multiplied, then your heart will become proud and you may say to yourself, 'My power and the strength of my hands have produced this wealth for me.' But remember the Lord your God, for it is he who gives you the ability to produce wealth, and so confirms his covenant."

The opposite of faithfulness is fear. We fear that God has forsaken us or is indifferent to our struggles. But fear can paralyze us. And if we do not take risks, we are unable to live and enjoy fully the life God has given us.

The final gift of the magi was myrrh, a bitter gum used in death and burial. In the Christian tradition, it reminds us that even at Jesus' birth, his death on our behalf is foreshadowed. As the apostle Paul writes in the letter to the Romans (8:32-34), "If God is for us, who is against us? He who did not spare His own Son, but delivered Him over for us all, how will He not also with Him freely give us all things? God is the one who justifies; Christ Jesus is He who died, yes, rather who was raised, who is at the right hand of God, He intercedes for us."

If God is for us, we can trust him, and take courage no matter how dark the future may appear. Look to integrate finances with your spiritual traditions to reflect the best of your values and live life holistically.

Seek to avoid pride, greed and fear is a common mantra in investment management. Jesus substitutes the positive virtues: justice, mercy and faithfulness. Don't think more highly of yourself if you have money. Be generous to those in need and trust that God cares for you. Remember these principles this Christmas season, and you will remember the one whose birth we celebrate.

December 20, 2008

Over the past eight months, shelters around the county have seen more animals turned in because their owners have lost their homes or jobs. The shelters are also straining to meet a sharp increase in requests from people who are struggling just to provide food for their pets, says Stephanie Shain, director of outreach for the Humane Society of the United States.

A spokesman for the Humane Society of Douglas County in Georgia said the abandonment rate is tenfold what it was two years ago, before waves of foreclosures started hitting neighborhoods around the county. With more animals coming in and fewer people with the resources to pay for a pet, nearly all shelters there are overrun.

This is why I talk often about the expense of pets. Most people don't think an animal costs that much, but they do. And they're a living, breathing creature -- you can't (or at least shouldn't) simply abandon them. That's why I want people to THINK about the cost of a pet before they get one. Be sure that any potential pet fits into both your budget and lifestyle. And if they don't, then refrain from getting one. Otherwise, you may end up having to make a tough choice that no one wants to make.

One last thing, the piece shares a money saving tip as follows:

Also, pet owners don't have to choose between taking care of their pets and taking care of themselves. Most local shelters offer vaccinations, spaying or neutering at a fraction of the cost of a private veterinarian's office.

Just thought I'd share this in case it could save anyone some money and/or heartache.

December 19, 2008

I was back at Stanford University recently and heard famed psychologist Philip Zimbardo lecture on his latest book, "The Time Paradox." His work suggests that understanding your own time perspective may help you unlock the secrets of financial freedom. In other words, how we think determines who we are and what we do.

Zimbardo's book focuses on how we perceive the effects of time on every aspect of our lives and our decision making. His Time Perspective Inventory scores individuals in six different time perspectives. Each perspective comes with strengths and weaknesses, and some are better at handling modern life and wealth management.

Within Zimbardo's categories are two past, two present, and two future perspectives. Both the past and future perspectives are abstractions. In a very real sense, we only experience the present. The past is an abstraction of gratitude and regrets. Similarly, the future is an abstraction of possible fears and longings.

Although present thinking may have been critical in simpler times of survival, it isn't necessarily the best perspective today when wealth itself is also the abstractions of shares in a company or zeros in a bank account.

People who live in the future are by far the most successful. Western civilization rose and prospered because of our future-oriented culture. Unlike present hedonists who live in their bodies, Zimbardo writes, "Futures live in their minds, envisioning other selves, scenarios, rewards, and successes."

He explains that you can test for future thinking as early as age four by giving children one marshmallow and telling them if they wait until you get back to eat the marshmallow, you will give them another one. Interestingly, children who have learned to delay gratification at age four score an average of 250 points higher on their Scholastic Aptitude Test (SAT) 14 years later. It isn't that time orientation is determined by age four. In fact, Zimbardo argues we are all born as present hedonists, seeking pleasure and sustenance while avoiding pain and bitter tastes. But by age four it is already apparent that some children live in an environment that encourages a future orientation.

Futures make money. They earn more. They get more education. They get better jobs. But most importantly, they save more and spend less. They discuss finances with their children and model future-oriented choices every day for the next generation.

Much of the advice in this column could be summarized as acting in a prudent future-oriented way in your investments.

Present hedonists use their money for fun and exciting experiences. They are the most likely to pile up credit card debt or experience home foreclosure. Their journey from rags to riches, if it happens, is often a round-trip ticket. They consider savings a token expense and a low priority. Impatience may cause them to chase returns.

To present fatalists, money just doesn't matter. They don't designate their money for present or for future enjoyment but simply spend it because it's there. Thus their spending and investments are random, and they are unlikely to reach their long-term goals.

Past-oriented people are rare in the United States. They generally do not take risks, and they invest conservatively. Past-positives focus on their achievement of earning and saving and do not want to risk losing money. Past-negatives remember only investment downturns and don't want to be burned again. Neither the past nor the present-time perspectives prove to be as successful as the future perspectives at managing their wealth.

We can view our present market turmoil through each of these time grids. Past-positives are thankful for longer term gains over the last few decades, whereas past-negatives only measure their losses from the recent high watermark. Present hedonists use market losses as an excuse to enjoy rather than invest; present fatalists don't believe what they do matters because global forces are completely out of their control. Only future goal-oriented investors recognize that the stock market has gone on sale, and today is an even better day to invest in a balanced portfolio.

Zimbardo also points out that "smarter people have higher annual incomes but are no wealthier than average people are." Given that every 10 IQ points correlates to $4,250 a year more in annual income, smart people should be richer. Alas, they are not. Smart people make more, but they also spend more, sometimes a lot more. Zimbardo concludes with this simple moral: "To become wealthy you cannot spend more money than you make, and you must invest wisely." Sage advice.

Some researchers suggest that the present orientation of the poor is pathological. But Zimbardo is more optimistic. He believes we can learn to be sufficiently motivated and to change our attitudes and the behaviors associated with them.

Zimbardo offers the following five simple steps toward achieving financial freedom and using time to work for you: (1) The present is the best time to start investing. (2) Time in the market is more important than timing the market. (3) Know when your time will be up; those with a long time ahead of them can afford more risky investments. (4) You can't time the markets. (5) A hedonistic time perspective is an expensive habit few can afford.

I asked Professor Zimbardo what he thought was the ideal time perspective for Americans today. He replied, "It is vital to develop an optimal blend of several time zones, so that you are able to flexibly shift mentally from one to the other depending on the situation. When there is work to get done, call up your future focus--but not excessively so (that can lead to sacrificing family, friends, fun and sleep). When you complete a task, take a time-out to reward yourself, indulge the present hedonist in you (get a massage, manicure, hot tub, see a movie, read a good book, meet a friend at a coffeehouse) but only moderately so. And always make time to engage with your positive past, your family, your own identity over time, with your legacy and cultural foundation. The past gives you roots; the present hedonism supplies the energy to take chances, to improvise, to take risks; the future gives you wings to soar to new destinations, to imagine new visions. You can have it all if you work at creating this balanced time perspective."

Perhaps a future study could find the correlation between your Zimbardo Time Perspective Inventory Score, your credit score and the size of your investment portfolio. To see how you score, visit www.thetimeparadox.com; take the test and score it.

One of my tips for making more money is to turn your hobby into an income. I've done this twice now -- both with writing (magazine articles) and blogging -- and with the right hobby, some creativity, and a good amount of hard work, you could probably do the same.

Today I want to share an example of someone who turned his hobby into a pretty big income -- so big that he could leave his day job. Here are the details from CNN:

A former ATM software designer for a large bank, Demeter created "Trism" in his spare time and pitched it to Apple last spring. The company made the game available for download with the July launch of its App Store, an online provider of applications for its iPods and iPhones.

Priced at $5, "Trism" earned Demeter $250,000 in profits the first two months.

And now with all this publicity, he'll probably make much, much more than that in the future.

So, in short, he combined skills he had (programming) and his hobby (gaming) and created something he liked. He then sold the concept, got it included for consideration (in the App Store), and it was a hit. It's a great story!

Now most of us won't come up with something that earns $250k in two months, but we can develop an idea that maybe makes us an extra $5k or $10k a year. And that can come in quite handy to most people's budgets. Besides, if it's a hobby you really enjoy, it won't seem like work at all to earn that extra $$$$$. ;-)

Consider saying "No"—firmly. Declining a request for help, while painful, is sometimes the best decision a person can make, especially since many loans never get paid back.

Look for nonmonetary alternatives (i.e. loan out a car.)

Put all loans and gifts in writing. Relatives lending over $1,000 should draw up a simple document describing the terms of the loan, including the interest rate and schedule for repayment, recommends Jennifer Streaks, a financial services attorney in Washington, D.C.

Get help online. For a fee, peer-to-peer lending sites allow friends and family to formalize the loans they make to each other.

Here's what we've done on the few times we've been asked for a loan from family (and friends for that matter):

1. Get all the details. How much do they want, what do they need it for, what other alternatives do they have, etc.

2. If we think it's a reasonable request and we want to help, we GIVE them the money. This eliminates all the "you owe me money" sort of vibes that can derail close relationships.

3. If we don't think it's a reasonable request, we decline and try to point them in the right direction. In most cases, this is a suggestion that they get some financial counseling. Giving money to someone who's not prepared to use it correctly is not helpful to them or to us.

One other thought: one peer-to-peer company is LendingClub. They are also a sponsor here at Free Money Finance. I'd suggest you check them out if you're at all interested in borrowing in this way (or if you'd like to lend money to others.)

Pet Psychologist -- Don't be so shocked. Even Sparky sometimes needs help to keep from gnawing through the neighbor's bed of prized roses. Once the local vet has ruled out physical ailments that can contribute to rude pet behavior, people who love their animals may need to call in a trained, certified behaviorist or pet psychologist. As with human patients, pets can be analyzed and taught to act contrary to destructive impulses. There are even certified applied animal behaviorists. To get into the field, you'll need a master's or doctorate degree in psychology, preferably with additional work in zoology and animal behavior. Salaries vary greatly by locale, but can be upwards of $90,000 a year.

Ok, I don't know which surprises me more -- that this position actually exists or that someone holding this job can earn $90k a year.

There is no evidence that brand-name drugs given to treat heart and other cardiovascular conditions work any better than their cheaper generic counterparts, U.S. researchers said on Tuesday.

Ok, so what does this mean to your pocketbook?

"Brand-name drugs for cardiovascular disease can be as much as a few dollars a pill, whereas generic drugs might be as little as a few cents a pill," Kesselheim said.

Let's say you take one pill a day. If the name brand is "a few dollars a pill", let's assume it's $3 per pill. And if the generic is "a few cents a pill", let's assume it's $0.10 per pill. So for a one-year period, the choice is to pay $1,095 or $36.50 for something that has the same level of effectiveness. Now, which one do you think is the better deal?

Passive investing -- Passive investing has its advantages. For one, it's almost a set-it-and-forget-it strategy. A purely passive strategy would be buying an S&P 500 index fund and then never touching it again.

Fundamental analysis -- Fundamental analysis involves studying the entire picture of the broad economy, industries within the economy and then individual companies within each industry to assess its financial strength.

Technical analysis -- Technical analysts use charts to study historical stock prices and trading volume data to gauge investor sentiment as a guide to the prospects of a particular security.

Market timing -- But even professional traders often use either technical or fundamental analysis to time the market. In addition to studying price and volume data on charts or studying financial statements and the economy, they focus on something called the moving average.

2. I used to use fundamental analysis until I realized it took too much time, effort, knowledge, information, and luck to be successful for me (and for most people for that matter -- that's why people spending their careers doing this usually don't beat the market once costs are taken into account.) The most famous/notable exception to this "rule" is Warren Buffett. And, of course, we all know how he advises people to invest. :-)

3. I have a friend who uses technical analysis -- at least he did until he realized it didn't work (and it was eating him up in fees.)

4. Is "market timing" a viable strategy? Has anyone ever been able to predict the rise and fall of the market in advance over the long term? Sure, people have predicted one or two growth spurts or declines (I could do that much), but who has done it over and over again for years?

We've discussed how people at the right weight and non-smokers pay less in insurance premiums because they are generally more healthy than those over weight and people who smoke. Seems fair to me -- you have less of a chance of needing insurance, so you should pay less for it, right?

So when US News asks if vegetarians should pay lower insurance premiums, it's a valid question. Of course there are issues like how to enforce such options, but if it's true that vegetarians are less likely to need insurance, shouldn't they pay lower rates? Personally, I'm ok with it (though I'm not a vegetarian). What do you think?

BTW, I'm not going into it in this post, but the issue of people who choose to lead less-than-healthy lifestyles and the cost of their medical care/insurance is a HUGE issue to consider as the U.S. looks at national health care. I'm fine with people doing whatever they want to do (smoke, eat like pigs, etc.) as long as they're paying for it. But if I'm going to pay for it, I think it's reasonable to ask them to do their part and maintain their weight, stop smoking, etc. I'll talk more about this issue as Obama gets into office and we start seeing his specific proposals for health care reform.

Anyway, the Wall Street Journal comes up with a great answer for how to sell a coin collection: it depends. I know, really helpful.

Thankfully the advice doesn't stop there. Here's an overview of the two main options they offer:

If you're trying to unload a coin collection quickly and you're willing to leave some (potential) profit on the table, a coin dealer is your best bet. But if you think your coins are worth at least several thousand dollars and you're willing to work with an auction house to try to beat the wholesale price, you might get a larger return on your sale through an auction.

They go on to give a few details -- those of you interested can click through and see their suggestions.

I'd suggest you do a little pre-work before you go to a dealer or auction house. Ask friends who are coin collectors and are knowledgeable on the subject (in other words, "real" collectors, not pretend ones) what they think the value of your coins are in advance. Then when you approach a dealer or auction house, you at least have a decent feel for what the coins could be worth.

As another option for selling your coins, your collector friends may want to buy them. This is why I'd always ask a few friends to give you their estimates on the value of your coins -- just want to make sure one person doesn't try to low-ball you. ;-)

So maybe you're not the nerdy type who has hundreds of coin-collecting friends -- what do you do in that case? Maybe ask your friends and family if they know of any coin collectors. If you get some good references, you can then ask them for estimates. If you don't get any, then you may be at the mercy of a coin dealer -- though you could always go to several dealers and take the best offer.

Anything I'm missing? If any of you have some better advice on this subject, I'd love to hear it.

December 17, 2008

If you own two homes, sell the one you are living in and move into your second home as soon as possible. Tax changes taking effect on January 1 will make owning a second home much less attractive in 2009. As a result, the already depressed market for vacation homes will deflate even more.

Previously, any capital gains on your primary residence were excluded up to $250,000 for singles and $500,000 for couples. A primary residence was defined as any home you had lived in for two of the previous five years. The "prior rule" gave seniors moving to a new residence three years to make the move permanent. During that time they could still sell their original residence and take advantage of the exclusion.

It also allowed seniors who had a vacation home to move there and sell their primary residence. After two years their vacation home qualified as their primary residence. Young grandparents approaching retirement could buy a retirement home as a vacation destination while they were still working. After retirement they had time to sell their original home and in two years gain a full exclusion for their new residence.

With the new rule, primary residence is not something you can qualify for. Rather it is just a percentage of the time you live there.

The new law eliminates the capital gains exclusion, prorated on the amount of time a home was not your primary residence. After January 1, every day you aren't living in a home starts adding to the percentage of capital gains tax you will ultimately be obliged to pay.

Also, capital gains are no longer waived on a primary residence unless it has always been your primary residence. Starting in 2009, the percentage of time a home is not your primary residence will be the same number used to calculate the amount of capital gains that won't be waived. For example, if you own a house for ten years and have only lived in it for five, you will have to pay taxes on half of the capital gains when you sell it.

These are the same capital gains that President-elect Obama promised during his campaign to raise from 15% to 28% on the most productive citizens. Some states (e.g., California) tax capital gains at ordinary income tax rates, adding an additional 9.3%. So people who make significant contributions to society could easily be facing taxes of 37.3% on gains that are mostly inflation.

This isn't just a problem for the wealthy. You can be pushed into the top 1% of income tax payments simply by selling a house in California. Middle-class couples routinely get hit with unexpected taxes selling a home with capital gains well over the $500,000 exclusion. Because it is not a onetime exclusion, couples who have stayed in the same house for 40 years get socked with the tax, whereas couples who move every decade have multiple chances to realize smaller gains that are under the limits. People who move frequently shouldn't be rewarded with a tax break.

Here's another factor to consider: Home appreciation is mostly inflation. Taxing government-created inflation as so-called gains isn't fair. Even according to the official inflation numbers reported by the government, the equivalent of a million-dollar home today was a $179,154 home in 1970. Calling the $820,846 inflation a capital "gain" is ludicrous.

Class envy is equally mindless. Capital gains on real estate affect your finances even if you don't own a second home. The housing market isn't segmented into primary and secondary residences. What depresses the values on second houses depresses the value of all homes.

The second-house class is the very group that could have helped shore up today's slumping housing market. Speculators who would have bought real estate at the current depressed prices will find this option far less attractive in 2009. Instead the new law will encourage them to sell their current residence (taking the full deduction) and move into their second home. Then their second home will become their sole and primary residence, and they won't have to deal with future nonexempt capital gains taxes. Ask your financial advisor about the potential costs of continuing to own two homes. If you delay, you may be holding an unused vacation home until you die just to avoid this new tax burden. And as a result, your heirs will inherit the house with a step-up in cost basis.

Because of the law, thousands of additional homes will be added to the market, softening the demand for housing even further. It is as though a shortage of people are buying real estate and we've passed a one-per-customer tax incentive law. There is no reason to discourage what no one is willing to buy. The new legislation will probably push home values to new lows during 2009.

Why the law was changed is unclear. The old law was difficult to abuse. Those who were rapidly turning over real estate could not take advantage of the law. If someone tried to flip 25 homes, it would take 50 years. The new law doesn't make any sense, but if it did make sense, it probably would not be Congress.

The new law won't bring in much additional revenue either. But it will complicate record keeping and tax returns for anyone selling a home they have not lived in continuously. As a result of these disincentives, buying or selling vacation homes will become less desirable.

This legislation graphically illustrates the deadweight costs of taxation. Rarely is the concept so clear. The law will remove much of the value of vacation homes from the economy without collecting much additional tax revenue. All pain, no gain. It teaches us a sad lesson about the destructive power of taxation.

Vacation homes represent an expense that can easily be let go in challenging economic times. Many families own a vacation home during the season of children or young grandchildren. After that, the travails of maintenance and repairs outweigh their pleasure in the home. Management companies remove much of the headache but make the economics even more problematic.

In times of rising home values, the investment in a home at least kept up with inflation, but with the new laws the government will tax you on that inflation. As a result of these changes, consider simply renting a vacation home and letting someone else pay the capital gains tax.

About 20% of job seekers and employees undergoing background checks exaggerate their educational backgrounds. In a 2004 survey of human-resource professionals, 61% said they "often" or "sometimes" find résumé inaccuracies when vetting prospective hires, according to the Society for Human Resource Management.